How courts are viewing motor carrier cargo disputes

The Second Circuit Court of Appeals has ruled that the BMC-32 Endorsement [Bureau of Motor Carriers attachment] does not apply to contract carriage for shipments taking place after Jan. 1, 1996, the effective date of the Interstate Commerce Commission (ICC) Termination Act.

In M. Fortunoff of Westbury Corp. v. Peerless Insurance Company, 2005 WL 3387698 (Dec. 13, 2005), in which Schindel, Farman & Lipsius represented the insurer, the court approved the practice of the Federal Motor Carrier Safety Administration to apply the BMC-32 Endorsement to common carriage only. The court held that the Termination Act “gave the FMCSA discretion to require cargo liability insurance for some types of motor carriage and not others.”

The court also said that the authority of the FMCSA to issue both common carrier certificates and contract carrier permits under the “transition rule” of 49 U.S.C. §13902(d) expired in 1998 when the rulemaking to revise the registration system under 49 U.S.C. §13908 was due. The FMCSA, apparently in the belief that the transition rule was in effect until it actually issued a rulemaking, has continued to issue separate common and contract authorities.

The effect of the court’s ruling is that all authorities issued by the FMCSA after the end of 1997 would be deemed simply general carrier authorities. A carrier with this general carrier authority may perform both common and contract carriage. If there is a BMC-32 Endorsement on the cargo liability policy of the carrier, it will apply only to common carriage services provided by the carrier.

It is not entirely clear how it will be determined if carriage is common or contract. It would appear, however, that this issue may provoke continued litigation. In this case, the court remanded the case to the District Court, presumably for a finding as to whether the shipper and the carrier actually agreed that the shipments would be contract transactions. This should not be an issue insofar as the contract between the shipper and the carrier specifically states that all services are to be provided under the contract carrier permit.

Meanwhile, the FMCSA has not issued new regulations to resolve these issues. The ICC Termination Act gave the DOT two years from January 1996 to issue new registration rules. Knowing that this was not done, Congress amended §13908, effective Aug. 10, 2005, giving the DOT a year from that date to establish a new registration system.

Pre-emption
Many court decisions in 2005 dealt with the issue of pre-emption of state law claims by the Carmack Amendment. Because the Carmack Amendment limits recovery for cargo loss and damage in regulated interstate transportation to the actual value of the cargo, claimants have an incentive to allege claims that may result in punitive or other extra-contractual damages.

For example, in Miracle of Life LLC v. North American Van Lines Inc., 2005 WL 1005988 (D.S.C.), the plaintiff alleged eight separate causes of action, including fraud, civil conspiracy, negligence, promissory estoppel and violation of the South Carolina Unfair Trade Practices Act. The court held that all of these claims were prohibited by the Carmack Amendment. In Vitramax Group Inc., v. Roadway Express Inc., 2005 WL 1036180 (W.D. Ky.), the court held that a claim for fraud which occurred prior to the actual transportation was pre-empted.

Similarly, in The Mapes Piano String Co. v. USF Dugan Inc., 2005 WL 1924184 (E.D. Tenn.), the court held that state law claims arising out of misrepresentations which took place prior to the receipt of the cargo are pre-empted. State law claims for loss of business damages were held to be pre-empted in AIG Aviation Inc., v. On Time Express Inc., 2005 WL 2416382 (D.Ariz.). On the other hand, in Schwarz v. National Van Lines, Inc., 2005 WL 1498463 (N.D. Ill.), state common law claims for intentional and negligent infliction of emotional distress were held not pre-empted. In Ducham v. Reebie Allied Moving and Storage Inc., 2005 WL 1383183 (N.D. Ill.) the same court held that a claim for fraud related to freight charges was not pre-empted. In Hewlett-Packard Co. v. Brother’s Trucking Enterprises Inc., 2005 WL 1524920 (S.D.Fla.), the court denied the defendant’s motion to dismiss state law claims on the grounds that there was a question of fact as to whether the defendant was acting as a carrier or as a broker. The Carmack Amendment does not pre-empt claims against brokers.

Similarly, in Nebraska Turkey Growers Cooperative Association v. ATS Logistics Services Inc., 2005 WL 2600235 (D.Neb.), the court permitted remand to a state court because claims against a broker are not pre-empted.

Cargo damages
There were a number of interesting cases in 2005 dealing with damages. Although the Carmack Amendment provides that the cargo owner’s sole remedy is for “actual loss or injury to the property,” the courts have consistently held that consequential or special damages are included.

In The National Hispanic Circus Inc., v. Rex Trucking Inc., 2005 WL 1484773 (5th Cir.), the circus was awarded damages for its missing bleachers, including rental cost, lost ticket sales and the cost to replace the custom-made bleachers. The circus was able to show that the carrier, because of its experience in moving the circus’ equipment, could have had notice of the special damages that would result from non-delivery. Likewise, in Mach Mold Inc. v. Clover Associates Inc., 2005 WL 2007249 (N.D.Ill.), the court held that “lost profits and all reasonably foreseeable consequential damages” are recoverable under the Carmack Amendment.

Two cases dealt with the issue of the proper measure of damages where the owner obtained the cargo in a bargain purchase. In Delta Research Corporation v. EMS Inc., 2005 WL 2090890, (E.D.Mich.) the claimant demanded the cost to buy a new machine to replace the damaged one it bought cheaply. The court awarded the claimant its purchase price because that best reflected the actual market value. On the other hand, in CPCI v. Technical Transportation Inc., 2005 WL 1354662 (W.D.Wash.), the claimant purchased used television sets for $400 each and sold them for $2,800 each. The court held that the resale price was the proper measure of damages.

In Crown Express LLC., v. Ozark Trucking Inc., 2005 WL 1657064 (E.D.Ca.), the court refused to dismiss a suit against a motor carrier on the grounds that no written claim was made within nine months of the date of delivery. The carrier presented evidence that it was its practice to issue the uniform straight bill of lading, but it did not show that a bill of lading was issued for the shipment in question. The court held that the nine-month claim period would not apply unless there was a bill of lading which specifically provided for the claim time. As for what constitutes a claim, the 11th Circuit Court of Appeals held that a written claim which specified a range of damages satisfied the requirement of 49 C.F.R. §370.3(b) for a claim for a “specified or determinable amount of money.”

Edward Farman is a partner at the firm of Schindel, Farman & Lipsius, LLP, which specializes in transportation law and insurance disputes. This is an excerpt from Recent Developments In Transportation and Insurance Law, prepared by Schindel, Farman & Lipsius LLP and Central Analysis Bureau Central Inc., a service organization for the motor carrier insurance industry. For more information, contact Jean Gardner, Esq., jgardner@sfl-legal.com. All of the cases referred to are available on the firm’s Web site at www.sfl-legal.com.